While online grocer Ocado will be pleased with a 21.4% increase in first-half sales, attention should now turn to improving the group's profit positioning, a retail analyst has suggested.
Following the announcement that Ocado had reported a loss of £23 million for the half-year period, Andy Halliwell of Publicis Sapient commented, "Ocado seems to be looking a little risky right now. They’ve just invested a lot of money in their new Smart Platform technologies that are yet to bring in significant additional revenues, and their position in the grocery automation market is a premium one.
"This is why a number of international grocers are reportedly deciding to use alternative technologies, at least whilst they get their home delivery propositions off the ground."
'Need To Do Something Special'
Halliwell also suggested that the coronavirus-related 'bounce' enjoyed by the business may now be on the wane, with reduced basket sizes, indicating that the business will need to "do something special to demonstrate the growth that many expect from their business", over and above signing deals with international retailers.
One potential profit driver could come from advertising, following the group's recent tie-up with CitrusAd, the same business that Sainsbury's worked with on its Nectar360 platform.
"Ocado have just turned on the taps to the majority of their suppliers to sponsor and buy media space on their existing platform," said Halliwell. "Industrialising this product for international businesses in partnership with CitrusAD could be a win for both businesses.”
Ocado In The Middle Ground
Another analyst, Ross Hindle of Third Bridge, suggested that Ocado now finds itself in a "tightly squeezed middle-ground", a potentially dangerous place to be unless the business ramps up capacity.
"On one side grocery giants like Tesco’s are gradually finding ways to make delivery more efficient, whilst on the other online food delivery companies like Deliveroo plus a whole flotilla of on-demand grocery startups are changing the way we buy food," he said.
"Our experts say that unless Ocado quickly ramps up capacity, they will struggle to gain market share in a fast-evolving retail market."
Devil In The Detail
Elsewhere, Russ Mould of AJ Bell notes the 'devil in the detail' of the tie-up with Auchan Retail's Alcampo business, suggesting that it could lead to a larger rollout.
“While Ocado’s new deal in Spain with Auchan Retail may not initially look like a big deal, there is a line in the statement which says the companies will explore the potential to expand the partnership into other geographies," he said.
"Auchan operates in 13 countries including France, Portugal, Russia and Ukraine, which suggests that Ocado has got its foot in a very important door."
Noting that Ocado is a long-term growth play, Mould doesn't expect the business to be under pressure to make dynamic changes in its strategy.
“Ocado is a multi-decade growth story and the ‘spend money to make money’ phase is going to be around for some time," he added. "Years ahead it could be generating significant income from its plethora of partnerships and that’s why the stock market seems happy to put the company on a high valuation rather than focus purely on profit. That’s fortunate because Ocado is still loss-making.”
© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Technology news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.
